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The general rule was that, in cases of premature wrongful termination of a time charter, damages would be assessed at the time of termination as the difference between the contract rate for the balance of the charter period and the market rate for chartering a substitute vessel for the same period: see The Elena D’Amico [1980] 1 Lloyd’s Rep 75. This was justified as ‘deemed mitigation’, or on the basis that this represented the loss which might fairly and reasonably be considered as arising naturally from the breach. If the owner or charterer (as the case may be) decided not to take advantage of a market which was available at that time, this was his own business decision independent of the repudiatory breach of contract. This was so whether or not that decision was reasonable, and the actual facts of the case were usually irrelevant: see Lord Bingham in The Golden Victory [2007] 2 AC 353, para.10.
However, the Elena D’Amico method of assessing damages was only a prima facie rule or a rule of thumb on causation and mitigation. It obviously could not apply when there was no market at the time of termination of the charterparty. In such situations, it was held in Zodiac Maritime Agencies Ltd v Fortescue Metals Group Ltd [2010] EWHC 903 (Comm) that there could be no ‘deemed mitigation’. Even if an available market emerged at a later stage, an owner’s decision not to take advantage of that market was not necessarily one which was independent of the wrongful termination; there was no basis for requiring the shipowners to go back to the term market at the end of every spot voyage, or to disregard short time charters in case the market for longer charters emerged in the meantime. Unfortunately, the decision in the Zodiac case came too late to be cited to the arbitrators in this case.
As held in The Griparion [1994] 1 Lloyd’s Rep 533, when the Elena D’Amico method of assessing damages could not apply, the court – when assessing damages - would consider the underlying questions: What loss had this breach caused as its normal and direct consequence? And what conduct should be presumed to be unreasonable? Damages should be assessed by reference to the Shipowners’ actual loss, subject to the question of mitigation. In cases like the present, where damages fell to be assessed before the end of the contractual period, while the revival of the market did not in itself provide the correct measure of damages, it was nevertheless a factor to be taken into account in calculating future loss. Courts might consider the market conditions to be such that the owner should have taken advantage of the reviving market to mitigate its loss. The Charterers in the present case, however, had accepted that the Shipowners had properly mitigated their loss, and so this issue did not arise.
